The oil drillers have suffered plenty of punishment in the wake of the Gulf disaster and the administration-imposed moratorium on offshore drilling. After the initial plunge, stocks in the sector have begun to recover. Although many saw the plunge as a profitable entry point into names that previously seemed out of reach, at this point they look like trades, not long-term buys to me.
Today I'll take a look at a stock that was passively involved and thus severely punished by the Gulf disaster. The company is
and though there is plenty to consider in terms of fundamentals, I'll look strictly at the charts to see if there is greater opportunity than risk.
Given the huge range in the price of APC stock, let's start with the long-term time frame. On that time frame you can see the initial plunge in prices that occurred as part of the 2008 meltdown and then another devastating fall as part of the blown oil well in the Gulf. In both cases, volume exploded as prices dropped and in both cases volume was left at the bottom of the chart. Some say that is a good thing as the stock is washed out. I say it is good if it gets tested before the rise begins again. In the case of APC, that didn't happen in either case. In my book, a high-volume low is a magnet that draws prices back to it eventually. That's a huge negative on this chart.
The spot to focus on with the long-term chart is the $48 to $49 area which is the top of the two high-volume bars. If APC trades back under that area, it becomes a negative. Any time a stock trades back into a high-volume bar, traders will try to push it to the other side of that bar. Those are very long bars.
On the weekly chart, the same idea applies. On this time frame, there is a cluster of high volume anchor bars in the $48.13 to $44.37 area. That is going to be very hard to push through in one fatal swoop. More than likely it provides an opportunity for a trader to look to get long as it comes back into that area for a pop back the other way. More than likely APC should trade back to that area and then attempt to work higher. For a trader, that would be the buy zone with the idea of flipping the shares back out as part of a larger range trade. With overhead resistance back at the recent highs, there is plenty of room for a range trade in APC on this time frame.
On the daily chart, a rather interesting formation has formed. There is a small cluster of trading days that have ended up as an island top just above the current price area. That island is usually a bad omen unless quickly filled and so far it has held for a good week now. That says you do not want to go long here and you want to lighten up if long until and unless that resolves to the upside. It also reinforces the view that a trade lower is likely adding credence to the intermediate range trade idea.
On this time frame, I would be very patient about adding shares as the support zone is broad. I would start slowly as it comes into the support range with the idea of adding all the way back and in heavier lots as it gets back toward the bottom of the zone. If it turns and runs back up before it hits the bottom of the range, so be it. Take your gains on the range trade and count your lucky stars. On the flip side, a trade and close below the support zone is a problem and the trade analysis was wrong.
In summary, APC doesn't look bad for a range trade if you are patient and wait out the retrace to put the trade on. What you would really like is a fast two or three days lower on price with no volume escalation into those anchor bars on the intermediate-term time frame. That would provide the setup needed to get long.
Until next time, just keep trading the charts.
Photo Credit: TheStreet Illustration
At the time of publication, Little had no position in APC.
L.A. Little, author, professional trader and money manager, writes daily on
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His background includes degrees in philosophy, computer science, computer information systems and telecommunications. With a trading philosophy centered on capital protection first and the accumulation of consistent gains over time, L.A. espouses a simplistic technical approach to trading the markets that is a throwback to the days of past. With a focus on swing points and the qualification of trends, L.A. provides a breath of fresh air to an otherwise crowded room of derivative indicators with the emphasis on technical minutiae.